Iona Corporation's ending inventory as of December 31, Year 1, was overstated by $28,000. Indicate whether each of the following statements relating to the above error is true or false.________ a)Cost of goods sold is overstated in Year 1 by $28,000.________ b)Net Income is overstated in Year 1 by $14,000.________ c)Retained Earnings at December 31, Year 1 is overstated by $28,000.________ d)Beginning inventory will be understated in Year 2 by $28,000.________ e)Retained Earnings will not be affected by this error at the end of Year 2.

Question

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b)False c)True d)False e)Ta)This is false. Overstating ending inventory at the end of Year 1 will understate cost of goods sold by $28,000.b)This is false. Overstating ending inventory for Year 1 by $28,000 also overstates net income for Year 1 by $28,000, not $14,000.c)This is true. Overstating ending inventory for Year 1 by $28,000 also overstates retained earnings at the end of Year 1 by $28,000.d)This is false. Overstating ending inventory for Year 1 will also result in overstating beginning inventory for Year 2.e)This is true. By the end of Year 2, the inventory error for Year 1 will have been reversed and retained earnings will be correctly stated.

Iona Corporation's Ending Inventory as of December 31, Year 1